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AS 16

Mithlesh (CA Practice ) (26 Points)

10 May 2007

hai freinds,
i am in confusion about the treatment of borrowing cost which related to borrowing for advance payment for an asset. That asset takes substential period of time for ready to use or sell in the hands of seller. for e.g. if i pay advance mony for asset on 1st april06 and the seller construct the asset and delever the asset on 1st may 08. what should be the treatment of borrowing cost incurred during the period of 1st april 06 to 30th april 08.should it to be capitalised or charged to P/L.is it a qualifying asset for me.

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3 Replies

Rakesh Kumar Bansal (PRACTICE) (113 Points)
Replied 10 May 2007

In my opinion it will be capitalised.Subtantial period of time normally means one year enless and untill circumstances show more time is good.

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Rajesh (CA_FINAL) (48 Points)
Replied 07 December 2008

As per the proviso of AS-16, the example of assets are plants, intangible assets(Development Phase), Investment in properties and inventories (Excluding the routine inventiories)

As u said as the assets fulfill the requirement of "substantial period" the asset is qualifying asset. So, any borrowing cost regarding to the Qualifying asset should be captitalised.

It will be against AS-16, if such expense is charged to P&L a/c so it should be capitalised.

abhishek bhatt (CA student) (136 Points)
Replied 24 December 2008

as per as 16 there should act which doesnot merely means physical const. of asset but also other like passing resolution or advance paid.boz as per AS 16 there must assumption of liabilities incurred.so it must be capitalised